Achieving Retirement: 5% Down Nomad VS 20% Down Properties | 004

During this edition of “Office Hours for Professionals” James and Jassen compare the outcome of buying 5 rentals using 20% down payments versus 5% down payments. In order to execute the second strategy we assume the client is implementing the Nomad™ model. Basically this strategy has them buy a new Property each year as an owner occupant while converting the previous Property into a rental until they own the desired number of rentals. This allows them to qualify for preferred owner occupant loans in terms of lower interest rates and down payments. Once these two Scenarios are setup James and Jassen plot them on the same Chart and compare Number of Properties Owned, Cash Flow, Net Worth, and Goals.

To wrap up this session of “Office Hours for Professionals” James answers some questions from attendees regarding the capabilities of the Real Estate Financial Planner™ for analyzing a client’s portfolio. Remember these weekly sessions are all about you and answering your questions on how you can use this software to provide your clients with a comprehensive analysis of their entire portfolio which is not available anywhere else. You can watch or listen to the entire episode or catch the highlights from the show notes below. As sometimes happens with live recordings there were some changes made in real time to our Scenarios during the recording so the show notes will reflect the final versions.

Watch the video of the presentation here.

You can also listen to this episode on our podcast using the player below.

Achieving Retirement: 5% Down Nomad™ VS 20% Down Properties Episode 004 – February 19, 2019

Episode Overview

James setup two Scenarios in which 5 rental properties are acquired and then looked at how each performed with regards to Number of Properties Owned, Cash Flow, Net Worth, and retirement Goals.

Created Scenarios

[004] 20% Down Purchasing 5 Rentals

In this Scenario we end up purchasing 5 rental Properties using 20% down payments for each. To save time we made a copy of the [002] Single Rental Property Scenario and changed only the following inputs.

  • Scenario Name: [004] 20% Down Purchasing 5 Rentals
  • Target Monthly Income in Retirement: $4,000

Then, we made a copy of Starts with $100K Account and input the following.

  • Name: Starts with $5K
  • Opening Balance: $5,000
  • Yearly Rate of Return: 8% fixed

After we made those changes we hit the Save button and re-opened the [004] 20% Down Purchasing 5 Rentals Scenario. We removed the Starts with $100K Account from this Scenario and added the Starts with $5K Account.

Next, we made a copy of the 1234 Main Street Property and changed the following:

  • Address: 2345 Main Street
  • Mortgage Interest Rate: 5.125%
  • Account for Down Payment: Starts with $5K
  • Account for Income and Expenses: Starts with $5K
  • Monthly Rent: $2,097.15

Don’t forget to remove the 1234 Main Street Property from this Scenario.

Once that was done we opened the Rule to Buy a Property When Account Has Down Payment and changed the below inputs.

  • Apply This Rule to the following Scenario: [004] 20% Down Purchasing 5 Rentals
  • Buy Which Property: 2534 Main Street
  • Which Account do you want to check for Down Payment: Starts with $5K
  • Minimum Account Balance: $5,000 (check box for Inflation Adjusted)
  • Maximum Number of this Property to Buy: 5

Then, they added a Paycheck and Personal Expenses Rule.

  • Apply This Rule to the following Scenario: [004] 20% Down Purchasing 5 Rentals
  • Account to Deposit Paycheck to: Starts with $5K
  • Account to Withdraw Personal Expenses from: Starts with $5K
  • Paycheck: $5,000
  • Stop Paycheck at Retirement: Check this box
  • Personal Expenses: $3,150
  • Dollar Adjustment After Buying Owner Occupant Property: $1,800
  • Inflation Adjusted: Check this box
  • Tax Rate: 17%

Finally, hit Save and then click the Run Analysis button to process this Scenario.

Once this was complete they setup a Safe Withdrawal Rate and Cash Flow Toward Monthly Income in Retirement Goal for this Scenario. They opened the Goal by clicking on the title and selected which Accounts and Properties to apply it to as you can see here.

To copy this Scenario into your Real Estate Financial Planner™ use this button.

Please Login to copy this Scenario to a Free Plan, Plus Plan, Copper Plan or better.

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004 20% Down Purchasing 5 Rentals with 2 Accounts, 1 Property, 2 Rules, 1 Goal

[004] 5% Down Purchasing 5 Rentals

To finish setting up this comparison James made a copy of the [004] 20% Down Purchasing 5 Rentals Scenario and renamed it [004] 5% Down Purchasing 5 Rentals.

The Account is the same in this Scenario but we changed the Property. First, select the Nomad™ Property button at the top of the page and then change the assumptions as follows.

  • Address: 2345 Main Street – 5% Down
  • Mortgage Interest Rate: 4.375%
  • Down Payment Percent: 5%
  • Closing Costs Percent: 2.5%

Next they modified the Buy a Property When Account Has Down Payment Rule and changed the below inputs.

  • Apply This Rule to the following Scenario: [004] 5% Down Purchasing 5 Rentals
  • Buy Which Property: 2534 Main Street – 5% Down ***Nomad***
  • Maximum Number of this Property to Buy: 6

James saved these changes and the re-opened the Safe Withdrawal Rate and Cash Flow Toward Monthly Income in Retirement Goal to check the box next to the Dynamic Nomad™ Property.

Next, they opened the [004] 5% Down Purchasing 5 Rentals back up. Don’t forget to remove the 2345 Main Street Property from this Scenario. Finally, they hit Run Analysis and were able to compare the results from the two Scenario.

To copy the [004] 5% Down Purchasing 5 Rentals Scenario just click the button below.

Please Login to copy this Scenario to a Free Plan, Plus Plan, Copper Plan or better.

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004 5% Down Purchasing 5 Rentals with 2 Accounts, 1 Property, 2 Rules, 1 Goal

Comparison of the Scenarios

To compare the outcomes of the [004] 5% Down Purchasing 5 Rentals Scenario and the [004] 20% Down Purchasing 5 Rentals Scenario James and Jassen started with the Chart for Number of Properties Owned.

As you can see in the Chart above, with the [004] 5% Down Purchasing 5 Rentals Scenario you buy your first Property around month 25 and the second one in month 54. Whereas in the [004] 20% Down Purchasing 5 Rentals Scenario you don’t even purchase the first Property until month 64. When purchasing Properties with 5% down payments you are able to acquire five rentals plus a house to live in faster than you are able to acquire three rental Properties using 20% down payments.

The next Chart they opened was Total True Cash Flow which factors in cash flow from depreciation. Once again, the [004] 5% Down Purchasing 5 Rentals Scenario performs better overall.

After that they looked at the Net Worth Chart. In the final month 480 the [004] 5% Down Purchasing 5 Rentals Scenario yields a net worth of $12.4 million and the [004] 5% Down Purchasing 5 Rentals Scenario yields a net worth of $8.3 million. In inflation adjusted dollars that’s $3.8 million versus $2.5 million for a difference of $1.3 million dollars in net worth.

The final one they focused on was the Goal Chart. This Chart looks at what percentage of your Goal for your target monthly income in retirement you have achieved. The Goal has been achieved when the line for a Scenario crosses the red dotted line labeled 100% Goal Achieved.

The result is that the [004] 5% Down Purchasing 5 Rentals Scenario reaches the Goal in month 264 while the [004] 20% Down Purchasing 5 Rentals Scenario takes until month 324.

Skills Covered

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